Often, we register a company for a business idea we wanted to implement and for some reasons it does not work, we do not even start the work. Also, there are times when we register a company for a future project and hence those companies are not operational in present.
There are various compliances which one needs to meet after registering a company and it takes a cost to meet them. Who would want to bear more cost for the company which is not working in the first place?
So, what do we do, we just keep the company like that, either we get the compliances done or many times we just ignore it.
Earlier, closing a company was a tedious process, which required a lot of formalities, things have changed now and there are now quicker modes to close the company.
Here we bring you two options for such companies that you have formed but not functional anymore.
Option 1: Fast Trick Exit (FTE) mode: Let’s you close your company
This mode as suggested by name lets you close your company quickly, any company which is defunct can apply for this mode.
Let’s understand what’s a defunct company
A Defunct company is a company which has:
1. Nil asset and nil liability, and
2. Not commenced any business or activity since its incorporation
Not been carrying any business operation since last one year.
Now we know if our company is a defunct or not, let’s move on to see the procedure for applying for the FTE mode
1. To close a company under FTE, one should apply through Form FTE, available in MCA website. This form should be digitally signed by authorised director.
The application fee will be Rs.5000/-
2. On receiving the application, the Registrar would display the name of the company on its website for a period of 30 days, to give notice to anyone who may have objection to the striking off the name of the company.
3. After 30 days, the Registrar will issue a certificate for closure of the company stating that its name is struck off from the register of companies maintained with the ROC.
The documents stated below are to be attached with the form FTE
i) We need a Board of Directors approval for closure of the company
Through a board resolution, BOD must approve applying for the FTE.
Note: All bank accounts, Registrations with the govt. authorities should be closed/ cancelled before applying for closure of the company.
ii) Once board resolution is passed, all the directors of the company should produce an affidavit on a stamp paper or Rs 100/- duly notarised & individually stating the following in it:
iii) Next, all the directors of the company should execute an Indemnity Bond witnessed by 2 persons on a stamp paper of Rs 200/- and undertake to do the following:
Option 2: Granting the “Dormant status”
This option is suitable when you have registered a company for a future project and hence the company is not operational currently. Also, where an in-operational company cannot be closed as it might be holding assets such as land, building etc., choosing the “dormant status” is a good option.
Let’s understand what’s a Dormant company?
A dormant company is a company which is inactive i.e. a company which has the following characteristics:
Procedure for obtaining status of dormant company:
Advantages of applying for ‘Dormant Status’
There is lesser compliance burden for a dormant company which reduces the costs of maintaining such a company.
‘Dormant Companies’ are exempted from the following compliances:
Compliances to be met by a dormant company:
Also, note that maximum tenure for which a company can remain dormant is 5 consecutive financial years.
If a company remains dormant for more than 5 years, the Registrar commences the process of striking off the name of the company from the Records, i.e. the company will be removed.
(The author is a CA in practice at Delhi and also the owner of http://moneyboat.in/ and can be contacted at: E-mail: firstname.lastname@example.org, Mobile: +91-9811741451)